NAFTA AT 25

Promises vs. Reality

The North American Free Trade Agreement (NAFTA) went into effect on January 1, 1994 after a contentious national debate. Proponents of the pact, signed by President George H.W. Bush and pushed through Congress by President Bill Clinton, promised rosy outcomes. They said NAFTA would improve the U.S. trade balance with Mexico and Canada, create one million new U.S. jobs in its first five years alone, improve environmental conditions and bring Mexico’s living standards closer to those in the U.S., which would reduce immigration pressures. None of these outcomes materialized.

Instead, opponents’ concerns became reality. NAFTA’s investor protections promoted mass job outsourcing, with almost one million jobs certified as lost to NAFTA just under one narrow government program. The U.S. trade deficit with NAFTA countries exploded, with import surges shuttering U.S. manufacturers and turning a pre-NAFTA agricultural trade surplus with the other NAFTA countries into a deficit. Consumer and environmental safeguards were successfully attacked in NAFTA tribunals, and imports of unsafe food soared while safety inspections declined. Real wages in Mexico declined from pre-NAFTA levels that already had been miserably low, and millions of Mexican farmers lost their livelihoods, pushing many to make the perilous journey to seek work in the U.S. The fallout from NAFTA ended decades of U.S. bipartisan congressional consensus in favor of trade agreements.

As a renegotiated NAFTA 2.0 deal remains a work in progress, this infographic report spotlights why the NAFTA model must be replaced. Improvements are needed to the NAFTA 2.0 deal signed on Nov. 30, 2018 so that, at a minimum, a new deal will stop NAFTA’s ongoing damage to workers and the environment.

Outsourcing and U.S. Job Loss

Broken Promise

One million new American jobs.

“I believe that NAFTA will create 200,000 American jobs in the first two years of its effect … I believe that NAFTA will create a million jobs in the first five years of its impact.”

President Bill Clinton, 19931

“Many Americans are still worried that this agreement will move jobs south of the border … There have been 19 serious economic studies of NAFTA by liberals and conservatives alike; 18 of them have concluded that there will be no job loss.”

President Bill Clinton, 19932

Reality

Almost one million American jobs are government-certified as lost to NAFTA.

  • The growing NAFTA trade deficit equated to a net loss of one million U.S. jobs in the first 10 years of NAFTA alone, according to the Economic Policy Institute (EPI).3 EPI calculated both jobs gained due to trade and jobs lost: The balance was still over one million American jobs lost.
  • More than 950,000 specific U.S. jobs have been certified under just one narrow U.S. Labor Department program as lost to NAFTA outsourcing and import floods, and jobs continue to be outsourced to Mexico every week.4 This figure, representing workers certified for Trade Adjustment Assistance, represents an undercount of total jobs lost to NAFTA given the program’s limited scope. Contrary to conventional wisdom, the job loss has not occurred only in the “Rust Belt,” but nationwide. The congressional district with the largest number of certified NAFTA job losses encompasses El Paso, Texas. The states with the largest certified NAFTA losses are California and North Carolina.
  • Nearly 4.5 million U.S. manufacturing jobs – one out of every four – have been lost overall since NAFTA took effect, according to the U.S. Bureau of Labor Statistics.5 Beyond NAFTA, this job loss is attributable to Congress’ 2000 vote to grant China Permanent Normal Trade Relations and its entry into the World Trade Organization (WTO).6 Claims that U.S. manufacturing job loss is being caused by automation have been disproved in a spate of recent studies featuring careful data analyses that show no relationship between rates of investment in automation and manufacturing job loss.7 In contrast, even the pro-NAFTA Cato Institute has characterized the investor protections and Investor-State Dispute Settlement (ISDS) regime at the heart of NAFTA as subsidizing outsourcing by lowering the risk premium of relocating offshore.8 NAFTA was the first “trade” pact to include special privileges for investors that make it less risky and less costly for U.S. firms to relocate jobs offshore.

Trade Deficit Explodes

Broken Promise

Trade balance would improve.

“With NAFTA, U.S. exports to Mexico will continue to outstrip Mexican exports to the United States, leading to a U.S. trade surplus with Mexico.”

Gary Hufbauer and Jeffrey Schott, “NAFTA: An Assessment,” 19939 (This was the seminal study on prospective NAFTA outcomes that was universally cited by the Clinton administration and congressional and corporate NAFTA supporters.)

“Estimated gains in U.S. exports to Mexico range from 5.2 to 27.1 percent. Projected increases in U.S. imports from Mexico range from 3.4 to 15.4 percent.”

International Trade Commission, 1993,10 predicting that NAFTA would not increase the trade deficit with Mexico

Reality

A huge new NAFTA trade deficit emerged, with imbalance growing more than with non-NAFTA nations.

  • A $3 billion U.S. goods trade surplus with Mexico and a $31 billion deficit with Canada in 1993 (the year before NAFTA took effect) turned into a combined NAFTA goods trade deficit of $191 billion by 2017.11 This represents a 576 percent increase in the U.S. goods trade deficit with NAFTA countries (see graph) in inflation-adjusted terms. Contrary to conventional wisdom, the U.S. has an agricultural trade deficit with the NAFTA countries. (More on that, below.) Defenders of NAFTA try to distract from the large NAFTA trade deficit by touting the overall growth in trade between the U.S., Mexico and Canada, as if expanding the volume of trade is a goal unto itself. The relevant consideration is how NAFTA altered investment and production location decisions, which resulted in shifting trade patterns with negative implications on jobs and wages.

U.S. Goods Trade Deficit With Canada and Mexico Increases 576% Over NAFTA Period

Source: U.S. Census Bureau
  • The annual growth in the U.S. goods trade deficit with Mexico and Canada has been higher in the years after NAFTA than before NAFTA. In the five years before NAFTA, the U.S. trade deficit increased by 7 percent a year, and in the 25 years since, it increased at almost double the pre-NAFTA rate, in inflation-adjusted terms. Since NAFTA, the annual rate of growth of the U.S. goods trade deficit has been 43 percent higher with Mexico and Canada than with countries that are not party to a NAFTA-style trade pact, which includes China.12 The U.S. NAFTA goods trade deficit continued to increase during the Trump presidency: The deficit for the first three quarters of 2018 was up by 23 percent over the same period in 2016 and is now the highest NAFTA goods deficit in a decade.

Services Trade Surplus With NAFTA Partners Does Not Compensate for Goods Trade Deficit

Source: U.S. Bureau of Economic Analysis
  • The growth in the U.S. service sector surplus with NAFTA countries has not offset the much larger growth in the goods trade deficit. Service exports were supposed to do particularly well under NAFTA, but the U.S. growth in services trade surplus with Mexico and Canada has slowed: the surplus quadrupled in the five years before NAFTA, but only doubled in the 25 years since.13 If you include the relatively small U.S. service sector trade surpluses with Mexico and Canada, the combined U.S. goods and services trade deficit with Mexico and Canada rose (in inflation-adjusted terms) from $11 billion before NAFTA in 1993 to $158 billion in 2017.14 And, yes, we do have a trade deficit with Canada. The goods deficit in 2017 was $65 billion and the services surplus was $26 billion, resulting in a deficit of $39 billion.
  • Autos and auto parts comprise 38 percent of the NAFTA goods trade deficit, and 50 percent of the U.S.-Mexico goods trade deficit. Before NAFTA, there were only a handful of carmakers producing in Mexico. Now a dozen major U.S., Japanese, Korean and German automakers employ tens of thousands of Mexican workers in 37 auto assembly plants.15 Mexico produces more than three million cars annually16 and is fourth in car exports, behind Germany, South Korea and Japan.17 Two-thirds of Mexico’s auto exports currently go to the U.S. Contrary to the myth that energy imports represent a large share of the NAFTA deficit, which they once did, today the U.S. exports more energy to Mexico than it imports. The U.S. trade deficit with NAFTA countries is largely in manufactured goods.
Composition of the NAFTA Goods Trade Deficit, 1993-2017
Source: U.S. Census Bureau

Downward Pressure on U.S. Wages and Growing Income Inequality

Broken Promise

U.S. wages will increase.

“NAFTA will create more jobs, increased exports and higher wages with the agreement than without.”

Don Newquist, chair of the International Trade Commission, 199318

“Clearly we are going to be creating higher-wage jobs right here in the United States when it comes to enhancing our chance to export to Mexico.”

Rep. David Drier (R-Calif.), 199319

Reality

NAFTA put downward pressure on wages and exacerbated domestic inequality.

  • The broadest impact of NAFTA has been on the quality of jobs and thus the lack of wage growth for the 66 percent of U.S. workers20 – the majority of U.S. workers – without college degrees. U.S. real wages are flat, only 19 percent higher today than in 1993, having only grown 0.70 percent annually during 25 years of NAFTA, even as productivity grew 2 percent annually.21 Proponents of NAFTA note that since NAFTA, the total number of jobs in the U.S. economy has grown, as if this is evidence that NAFTA has not hurt U.S. workers. But trade affects the composition of jobs available. The millions of manufacturing jobs lost to trade (see jobs section for NAFTA-specific numbers) were replaced by new low-wage service sector jobs. The aggregate number of jobs over the long-term is better explained by fiscal and monetary policy, the impacts of recessions and other macroeconomic realities.
  • NAFTA-displaced workers have had to accept lower wages. About two out of every five manufacturing workers who lost jobs and were rehired in 2017 experienced a wage reduction, according to the Bureau of Labor Statistics. About one out of every four took a pay cut of greater than 20 percent.22 For the average worker earning the median manufacturing wage of $39,500 per year, this meant an annual loss of at least $7,900. A 2016 study focusing only on NAFTA tariff elimination found wages grew 17 percent slower for workers in the industries that were the most impacted by NAFTA tariff cuts and thus most impacted by NAFTA imports.23
  • Those who have not lost a job to NAFTA also face lower wages as trade-displaced manufacturing workers seek new jobs in non-offshorable sectors. When manufacturing workers lose jobs to trade and seek new jobs available to those without a college degree, they add to the supply of U.S. workers available for non-offshorable, non-professional jobs, for instance in hospitality, retail and health care. This results in wages in these growing sectors remaining flat and workers who did not lose jobs to NAFTA also facing lower wages. This phenomenon was measured in a recent study that showed that manufacturing workers who lost their jobs to trade seek new employment in non-tradable sectors (like restaurants and other service industries), where all workers – both new entrants and the existing labor force – see lower wage growth because of the trade shock.24
  • Companies’ threats to outsource to Mexico under NAFTA have weakened workers’ bargaining power and contributed to the widespread stagnation of wages. After NAFTA, for example, U.S. companies became more likely to threaten to outsource jobs to Mexico as a means of defeating union organizing drives, or otherwise restrain or cut wages or benefits for U.S. workers in union contract negotiations.25

  • The resulting broad-based middle-class wage stagnation has worsened inequality. The incomes of the richest 10 percent of Americans increased 2 percent each year from 1981 to 1994, but in the first six years of NAFTA and the WTO (from 1994 through 2000), incomes of the top 10 percent grew 8.5 percent each year. The richest 10 percent of Americans now take home half of all national income.26  

Slow U.S. Wage Growth and Skyrocketing U.S. Inequality During NAFTA Period (1993 Value=100)

Source: Economic Policy Institute (CEO compensation, options realized) using a five year rolling average to reduce volatility, and Organisation of Economic Co-operation and Development (wages). Note: 1993 used as the pre-NAFTA benchmark.

Standard of Living in Mexico Does Not Improve

Broken Promise

The standard of living in Mexico will become closer to that in the U.S. as labor conditions and wages in Mexico will improve.

“The second agreement [NAFTA Labor Side Agreement] ensures [that] Mexico enforces its laws in areas that include worker health and safety, child labor and the minimum wage ... It means that there will be an even more rapid closing of the gap between our two wage rates.”

President Bill Clinton, 199327

“We've got a commitment that they're going to raise their minimum wage with productivity. We've got an agreement for the first time in history to use trade sanctions to compel the enforcement of their environmental standards. As they begin to develop and locate better jobs farther south, we cut down on illegal immigration.”

Vice President Al Gore, 199328

“Our range of estimates for Mexican GDP growth is between a supercharged six percent a year, worthy of Asia’s tigers, and a startling 12 percent a year, comparable to China’s recent growth.”

Jeffrey Garten, Undersecretary for International Trade, Department of Commerce, 199429

Reality

Mexico’s real wages have decreased, and GDP per capita has barely risen, and labor conditions in Mexico did not improve.

  • Overall, in real terms average annual Mexican wages are down 2 percent, and the minimum wage is down 14 percent from pre-NAFTA levels.30 According to analysis by Bank of America/Merrill Lynch, the manufacturing wage in Mexico has stagnated since 2003 and is now 40 percent lower than in China.31 Prior to NAFTA, Mexican auto wages were five times lower than in the U.S. Today, even as U.S. wages stagnated, Mexican auto wages are nine times lower.32

  • With Mexican annual growth rates at less than one percent since NAFTA started in 1994, over half of the Mexican population and over 60 percent of the rural population still live in poverty.33 Mexico ranks 18th of 20 Latin American countries in growth of real GDP per person from 1994 to 2017, ahead of only Belize and Venezuela.34 Had Mexico grown at the higher rate it did prior to 1980, before its implementation of neoliberal policies that were deepened and locked in by NAFTA, today Mexico would be a high-income country with income per person comparable to Western European countries.35

  • NAFTA’s labor standards proved entirely ineffective, creating race-to-the-bottom incentives for U.S. firms to outsource production, which then slammed U.S. firms and workers with a flood of imports subsidized by environmental and social dumping. While 39 complaints were filed under NAFTA’s labor obligations, contained in a side agreement, not one systemic change to Mexican working conditions was achieved.36 No submissions have been recorded since 2015, as the uselessness of NAFTA’s labor provisions became obvious.

  • Mexico’s many violations of international labor standards during NAFTA’s 25 years are spotlighted by the thousands of fake “protection” union contracts that hold down wages. Today in Mexico, workers arrive at new high-tech, multi-million-dollar plants to find that a fake union for which they never voted has already signed a contract with the company that locks in low wages. Workers do not get to vote on the contract, but if they strike or try to organize an independent union, they can be fired for violating it. This occurred recently at Goodyear in San Luis Potosí, where workers get $1.58 an hour to make the same tires produced by workers at Goodyear’s Kansas plant who are paid $25 an hour. In April 2018, 600 of Goodyear’s Mexican workers went on strike to protest low wages and dangerous working conditions.37 The workers fired for violating the “contract” are now fighting to get their jobs back and implement a genuine collective bargaining agreement.38

Environmental Conditions in Mexico Worsen

Broken Promise

Environmental conditions in Mexico will improve.

“I believe that it is absolutely clear that with NAFTA, environment protection will improve throughout the continent; and that without NAFTA, we will lose an opportunity to inaugurate a new era of environmental protection.”

Carol M. Browner, Administrator, Environmental Protection Agency (EPA, 199339

“In a few moments, I will sign side agreements to NAFTA that will make it harder than it is today for businesses to relocate solely because of very low wages or lax environmental rules. These side agreements will make a difference. The environmental agreement will, for the first time ever, apply trade sanctions against any of the countries that fails to enforce its own environmental laws.”

President Bill Clinton, 199340

Reality

Environmental conditions deteriorated.

  • NAFTA’s environmental obligations proved entirely ineffective. No enforcement orders or sanctions have resulted from the 91 submissions seeking enforcement of environmental violations that were filed before NAFTA’s Commission on Environmental Cooperation (CEC).41 In its first six years, the North American Development Bank (NADB), another NAFTA environmental body that was set up to fund environmental cleanups identified by NAFTA’s Border Environmental Cooperation Commission (BECC), financed only 20 projects. NADB disbursed only 5 percent of its allocated $3 billion of clean-up funds,42 even as the total cost of environmental remediation at the time of NAFTA’s passage was estimated at $20 billion.43 By 2016, BECC and NADB reported only 60 completed projects through an investment of $700 million, far below what was originally allocated.44
  • NAFTA exacerbated pre-existing environmental problems, especially in the U.S.-Mexico border zone. A key claim of NAFTA proponents was that the severe toxic contamination and pollution threatening public health in the Mexican border cities where maquiladora factories were concentrated would be reduced as NAFTA provided duty-free access for production in other parts of Mexico. (Since the 1960s, the maquiladora program provided lower-tariff market access to the U.S.) While new maquiladora and other industrial clusters grew in non-border regions, NAFTA also spurred enormous industrial growth in the heavily industrialized and polluted border zone. Even in NAFTA’s early years, the estimated value of environmental degradation in Mexico outpaced the benefits of economic growth, according to the Mexican government’s own estimates.45 NAFTA triggered a rapid expansion of manufacturing in Mexico. In the year before NAFTA, there were 2,114 maquiladoras46 with 500,000 workers.47 In just the six years following the start of NAFTA, more than 1,400 new maquiladora plants opened and maquila employment doubled to 1.3 million.48 After China entered the WTO in 2000, there was a decline in growth of maquila factories, but as Chinese wages began to outpace Mexican manufacturing wages, the maquiladora industry, which was renamed IMMEX (Manufacturera Maquiladora y de Servicios de Exportacion) in 2006, began to grow again. By 2014, maquiladoras employed 80 percent of Mexico’s manufacturing workers.49 According to the Mexican government, IMMEX companies represent 85 percent of Mexico’s manufactured exports.50 A 2018 exposé by the Desert Sun, “Poisoned Cities, Deadly Border,” documents how the border maquiladora boom under NAFTA greatly exacerbated the pre-NAFTA environmental crisis at the border with toxics dumping, air and water emission and industrial accidents taking a severe toll on Mexican and U.S. residents living in the border region.51
  • The amount of illegal toxic dumping went up as the number of maquiladoras increased after NAFTA. As the number of U.S.-Mexico border maquiladoras expanded swiftly after NAFTA, so did the amount of hazardous waste produced in Mexico. Much of the toxic waste has gone unaccounted for: A 2004 study concluded that only about 10 percent of Mexico’s hazardous waste receives proper treatment.52 The La Paz Agreement required U.S. firms operating in Mexico to ship hazardous waste back to the United States for processing. The HazTraks database (established in 1992 but canceled after EPA budget cuts in 200353) reported an increase in tonnage of U.S. imports of hazardous waste from Mexico in the years after NAFTA, from 8,500 tons in 1995 to 11,000 tons in 1997, but this was estimated to be only a fraction of the waste generated.54 The Mexican government data are inconsistent over time, but nationwide hazardous waste was recorded at 10.5 million tons in 1997, with the six U.S.-Mexico border states where most maquiladoras were located responsible for 20 percent of that figure.55 Data collected between 2006 and 2015 by the NAFTA CEC record the same six U.S.-Mexico border states alone producing between 15,051 and 45,814 metric metric tons of hazardous waste per year.56 Over time, a larger share of total hazardous waste produced in Mexico originated in the northern border states.57 The gap in waste produced and waste being properly disposed of means that millions of tons of toxins have simply been dumped on the ground and into waterways during NAFTA’s 25 years. One example is the Rio Santiago, which a 2015 report by the National Water Commission found to be Mexico’s most heavily polluted river. The story of the river was featured in a 2014 documentary, Silent River: “Since the passage of the North American Free Trade Agreement 20 years ago, U.S. companies have used the Santiago River as their own waste canal.”58 The river, one of Mexico’s longest, traverses 349 miles across western Mexico. It passes through the community of El Salto, which is now home to over 300 businesses, including local and multinational electronics firms, automotive factories, chemical plants, pharmaceutical labs, and food and beverage companies. Many are suspected of illegally discharging toxic waste into the river, which also absorbs sewage from Guadalajara.59 Severe human health impacts, including cancer clusters, are associated with the river.60
  • In addition to hazardous waste, border residents also suffered from environmental health problems related to air pollution and inadequate water and sewage treatment. People in communities on both sides of the border have been harmed by increased carcinogenic diesel fumes produced by the rise in cross-border trucking under NAFTA. The number of trucks crossing at the busiest port of entry on the border, Laredo, Texas, doubled from 1 million in 1996 (the earliest year available) to 2.2 million in 2017.61 This surge has created long lines of idling trucks at border crossings that have been linked to increased respiratory diseases like asthma.62 The significant public health problems that were spotlighted during the 1993 debate on NAFTA, that were promised to be remedied with new NADB funding, persist. For instance, as of 2015, an official U.S. government report found “alarming” rates of water-borne diseases in border areas, including the incidence of hepatitis A being three times the national average.63
  • Within NAFTA’s first years, serious environment-related human health problems emerged. For example, a Texas Department of Health study conducted in four Texas border counties proximate to maquiladora factories found that between 1993 and 1996, the number of babies born with anencephaly (a type of neural tube defect) increased to more than twice the national average, an issue that has been linked to chemical exposure from industrial production.64 Between 1999 and 2014 (the earliest and latest follow-up data available), the Texas Department of Health continued to report rates of anencephaly 50 percent higher in border counties than in non-border Texas counties.65

Attacks on Consumer and Environmental Safeguards

Broken Promise

Consumer and environmental safeguards will not be threatened or undermined.

“NAFTA will specifically safeguard the ability of U.S. federal, state and local governments to set whatever levels of protection they deem appropriate to protect human, animal or plant life or health. Far from encouraging ‘downward harmonization,’ NAFTA and the supplemental agreements contain provisions to improve standards and their enforcement throughout North America … since we retain all our enforcement rights at the border, a challenge to our food safety standards by Mexico will not succeed.”

Rufus Yerxa, Deputy U.S. Trade Representative and chief NAFTA negotiator, 199366

Reality

NAFTA undermined public health and safety.

  • Corporations have used NAFTA to successfully attack environmental and consumer safeguards relating to toxics, water, oil, gas and timber policies, obtaining more than $392 million in compensation using NAFTA’s investor-state dispute settlement system. Of the 15 ISDS claims for more than $11 billion now pending under NAFTA, nearly all relate to environmental, energy, financial, public health, land use and transportation policies. ISDS attacks have resulted in corporations seizing millions in taxpayer funds after attacking environmental and health protections. To settle the Ethyl v. Canada NAFTA ISDS case, Canada reversed its ban on MMT, a toxic gasoline additive prohibited by the U.S. EPA in reformulated gasoline.67 Canada also dropped a proposed cigarette plain-packaging requirement in 1994 after U.S. tobacco firm R.J. Reynolds hired the former U.S. official who negotiated NAFTA, Carla Hills, to threaten an ISDS challenge against the policy.68 The threat chilled action on the important public health measure for decades, with Canada only now considering implementation after another tobacco firm recently lost a similar ISDS challenge. Even the most commonplace policies, such as environmental reviews, have been successfully attacked under NAFTA. In the Bilcon v. Canada case, a NAFTA ISDS tribunal ruled in favor of a company seeking a permit for a basalt blasting quarry and marine terminal in an environmentally sensitive area in Nova Scotia because the environmental impact assessment required for all such projects was deemed to violate the company’s NAFTA rights. A dissenting tribunalist called the decision “a remarkable step backwards in environmental protection.”69
  • After a NAFTA tribunal authorized $2.4 billion in trade sanctions, the U.S. opened its highways to trucks that do not meet U.S. safety or environmental standards. NAFTA required that trucks based in any NAFTA country be granted access throughout each country. The U.S. did not comply with this obligation after U.S. Department of Transportation Inspector General reports found widespread violations of U.S. safety and environmental standards for Mexico-domiciled trucks.70 In 2001, Mexico challenged this policy before a NAFTA dispute settlement tribunal and won.71 The Bush administration provided access in 2007, a decision which Congress then reversed.72 After a 2009 NAFTA tribunal authorized Mexico to impose $2.4 billion in trade sanctions against U.S. imports for failure to comply,73 the Obama administration approved access in 2011 despite the failure of a pilot program that was established to test whether the vehicles complied with U.S. safety and environmental rules.74
  • Mexico and Canada successfully challenged the U.S. Country of Origin (COOL) consumer labeling law for meat and poultry, and after $1 billion in sanctions was authorized, the law was gutted. American consumers can no longer ascertain where their meat or poultry is raised and slaughtered thanks to a successful trade-agreement attack by Canada and Mexico on the popular country-of-origin labeling meat labeling policy. Under threat of the imposition of $1 billion in sanctions against U.S. exports, Congress gutted the policy.75
  • Meat and poultry imports went up, inspections went down. NAFTA requires the U.S. to import meat and poultry that does not conform to U.S. safety or inspection standards. NAFTA’s implementing legislation changed U.S. laws that had previously prohibited imports unless a foreign plant was certified by U.S. inspectors to meet U.S. standards. NAFTA required the U.S. to accept meat and poultry from all facilities in Mexico and Canada if those countries’ domestic systems were found to be “equivalent,” even if core aspects of U.S. food safety requirements were not met.76 Despite a 149 percent increase in the volume of meat imports from NAFTA countries since 1993,77 the U.S. Department of Agriculture inspects less imported meat and poultry (9.4 percent)78 than it did before NAFTA. The U.S. Food and Drug Administration, which inspects fruits and vegetables, now inspects less imports from NAFTA countries (1.4 percent)79 than it did prior to NAFTA even as imports of fruits and vegetables have increased 329 percent.80

New U.S. NAFTA Agriculture Trade Deficit

Broken Promise

NAFTA would be a boon for U.S. farmers.

NAFTA will be “good for American agriculture.”

Incoming Agriculture Secretary Mike Espy, 199381

“The effects of NAFTA on the overall U.S. vegetable products industry will be minor … NAFTA will likely result in only a minor increase in U.S. imports in the livestock and meat sector in as much as U.S. rates of duty are already low, and no other NAFTA programs affect this sector.”

International Trade Commission, 199382

Reality

The U.S. agricultural trade surplus with the NAFTA countries became a deficit as U.S. agricultural exports to NAFTA countries have been swamped by  surging imports, with small farms hardest hit.

  • The U.S. agricultural trade balance with NAFTA partners has fallen from a $2.5 billion trade surplus in the year before NAFTA to a $7.7 billion trade deficit in 2017 in inflation-adjusted terms. Taking the average of the five years prior to NAFTA and the average of the most recent five years to filter out some of the volatility, a substantial turnaround in trade flows is apparent (see graph).83

NAFTA Agricultural Trade Balance, Pre-NAFTA Versus Last Five Years
Source: U.S. Census Bureau
  • Many of the agricultural products that the USDA highlighted in its fact sheets as prospective winners have actually been losers, as new NAFTA trade deficits in beef and vegetables swamped the gains in U.S. exports of products like corn.

     

    • The U.S. now has a NAFTA trade deficit in beef and cattle of $2.3 billion with Mexico and Canada. Proponents of NAFTA claimed that cattle ranchers would do particularly well under NAFTA.84 But from 1993 to 2017, U.S. imports of beef and beef products from Mexico have gone up from 1,070 metric tons to 210,000 metric tons.85 The trade deficit in beef and live cattle has grown 18 percent during the NAFTA period (see graph below).86
    • The U.S. trade deficit in vegetables with NAFTA nations is now 11 times higher than it was in 1993.87 Though official studies predicted imports from NAFTA would rise less than 3 percent,88 U.S. imports of fresh and frozen vegetables from Canada and Mexico quadrupled under NAFTA, increasing from 2 million metric tons in 1993 to 8.2 million in 2017. Some sectors not only faced a new flood of imports, but also declining exports. For instance, U.S. exports of tomatoes declined 47 percent under NAFTA, while imports increased 339 percent.
  •  
U.S. Trade Deficit With Canada and Mexico in Beef and Live Cattle
Source: U.S. Census Bureau
  • U.S. corn exports increased significantly, but the subsidized U.S. products displaced millions of Mexican farmers, creating NAFTA economic refugees, many of whom migrated to the U.S. In 2017, the U.S. exported 33 times as much corn to Mexico as before NAFTA, making Mexico the leading destination for U.S. corn.89 This corn transformed the agricultural landscape of Mexico, forcing millions of farmers off their land (see Mexico section) as well as transforming the Mexican beef industry from a grass-fed to a grain-fed factory farming operation.

More Than 240,000 Small-Scale U.S. Farms Disappear in the Era of NAFTA-Style Agreements

Source: U.S. Department of Agriculture
  • Small-scale U.S. family farms have been hardest hit by rising agricultural imports and declining agricultural trade balances, with 240,000 U.S. small farms liquidated during NAFTA’s 25 years.90 Since NAFTA, one out of every 10 small U.S. farms has disappeared. By 2017, over 240,000 small U.S. farms had been lost (see graph).91

NAFTA Creates Economic Refugees from Mexico

Broken Promise

Unauthorized immigration from Mexico will decrease.

“[We want NAFTA because] we want to export goods, not people.”

Mexican President Carlos Salinas, 199292

“As the benefits of economic growth are spread in Mexico to working people, what will happen? They'll have more disposable income to buy more American products and there will be less illegal immigration because more Mexicans will be able to support their children by staying home.”

President Bill Clinton, 199393

“If NAFTA passes, my job guarding the border will be easier. If NAFTA fails, my job stopping the flow of illegal immigrants (sic) will become even more difficult.”

U.S. Attorney General Janet Reno, 199394

Reality

NAFTA destroyed Mexican livelihoods and displaced millions in rural Mexico, a powerful push factor for migration.

  • About 2 million Mexicans engaged in farming and related work lost their livelihoods as NAFTA eliminated Mexican tariffs on corn and other commodities and the policies that supported small farmers.95 NAFTA did not discipline U.S. subsidies on agriculture, but did eliminate Mexican programs that supported small-scale farming. The result was disastrous for millions of people in the Mexican countryside whose livelihoods relied on agriculture. Amid a NAFTA-spurred influx of cheap U.S. corn, the price paid to Mexican farmers for the corn that they grew fell by 66 percent, forcing many to abandon farming.96 And, Mexico’s participation in NAFTA was conditioned on changing its revolutionary-era Constitution’s land reforms, undoing provisions that guaranteed small plots (“ejidos”) to millions of Mexicans living in rural villages. So, as corn prices plummeted, indebted farmers lost their land, which newly could be acquired by foreign firms that consolidated prime acres into large plantations. From 1993, the year before NAFTA began, to 2000, annual immigration from Mexico increased from 370,000 to 770,000 (see graph).
NAFTA: Flood of Corn, Wave of Immigration
Source: U.S. Department of Agriculture and Pew Hispanic Center
  • During the NAFTA era, the total number of undocumented immigrants from Mexico living in the U.S. increased from about 2.9 million to 5.8 million. As annual immigration numbers grew after NAFTA’s elimination of Mexican corn tariffs went into effect, the total number of undocumented immigrants from Mexico living in the U.S. increased from about 2.9 million in 1995 to 4.5 million in Between 2000 and 2007, the number increased to 6.9 million. When the number of available jobs plummeted during the Great Recession and deportations reached historic levels, the number of undocumented immigrants in the U.S. sharply declined. As the U.S. economy has recovered, the number of undocumented immigrants in the U.S. from Mexico recently leveled off at 5.8 million.97 But given that NAFTA did not grant people the same rights to cross borders as it did financial capital, one result of increased immigration under NAFTA has been a militarized U.S.-Mexico border. The number of U.S. Border Patrol agents steadily increased from 5,000 to over 20,000 in the NAFTA period, with a plan to increase the size by 5,000 more.98 Over 7,000 people have died crossing the U.S.-Mexican border since 1998.99

Asian Market Share in North America Increases

Broken Promise

NAFTA will ensure the U.S. retains its dominance on North America, stopping Asian countries from seizing our market share and strong rules of origin will keep Mexico from becoming an export platform for companies from other countries to gain duty-free access to the U.S. market.

“Without NAFTA, one of our best markets, Mexico, could turn to Japan and Europe to make a sweetheart deal for trade... Without NAFTA, Mexico could well become an export platform allowing more products from Japan and Europe into America.”

President Bill Clinton, 1993100

“The defeat of NAFTA will enhance the power of Asia and the European Community to move into our historic and natural territory, and our ability to be an economic and political powerhouse may be a thing of the past…”

Rep. Dan Glickman (D-Kan.), 1993101

Reality

The U.S. share of imports into Mexico declined and was displaced by goods from Asia, especially China, while Mexico became an export platform for Japanese, Korean and other Asian firms into the U.S. market.

  • NAFTA did not ensure U.S. dominance in the Mexican market; Rather, the U.S. share of overall imports into Mexico declined under NAFTA. While 69 percent of Mexico’s imported goods came from the U.S. in the year before NAFTA, that share fell to 46 percent by 2017. Much of the shift owes to a dramatic rise in Chinese exports to Mexico; The share of Mexico’s imported goods coming from China increased from 1 percent in the year before NAFTA to 18 percent in 2017.102
  • NAFTA’s weak rules of origin combined with Mexico’s low wages created a new export platform for companies from non-NAFTA countries to produce in Mexico and gain preferential access to the U.S. market. The share of non-NAFTA content in U.S. imports of manufactured goods from Mexico doubled between 1995 and 2011 (the latest year available) as manufacturing firms from Japan, Korea and other non-NAFTA countries that source parts from Asia set up shop in Mexico to exploit the NAFTA export platform (see graph).103 The share of non-NAFTA country FDI stock increased from 36 percent in 1993 to 41 percent in 2012 (the latest year data is available).104 the first decades of NAFTA, mainly Japanese and then Korean firms opened facilities to export to the U.S. using NAFTA. Now Chinese firms are increasingly joining this gambit. The Ministry of Economy has registered 900 Mexican companies whose capital investment is derived from China.105 Many factories source inputs from Asia. For instance, approximately 85 percent of imports into Mexico from China are intermediate goods, i.e., products to be incorporated into manufacturing processes in Mexico.106

 

  •  

Share of Non-NAFTA Content in U.S. Manufactured Imports From Mexico

Source: Organisation for Economic Co-operation and Development (OECD)

Endnotes

  1. William J. Clinton, “Presidential Address: Clinton Urges Passage Of Free-Trade Pact,” Congressional Quarterly Almanac 1993, 1994. Available at: https://library.cqpress.com/cqalmanac/document.php?id=cqal93-844-25162-1104274.
  2. William J. Clinton, “Remarks By President Clinton, President Bush, President Carter, President Ford, And Vice President Gore In Signing Of NAFTA Side Agreements,” The White House, Sept. 14, 1993. Available at: https://clintonwhitehouse6.archives.gov/1993/09/1993-09-14-remarks-by-clinton-and-former-presidents-on-nafta.html.
  3. Robert E. Scott, Carlos Salas, and Bruce Campbell, “Revisiting NAFTA: Still Not Working for North America’s Workers,” Economic Policy Institute, Briefing Paper 173, Sept. 28, 2006. Available at: http://s2.epi.org/files/page/- /old/briefingpapers/173/bp173.pdf.
  4. Public Citizen, Trade Adjustment Assistance Database, 2018, accessed Sept. 9, 2018. Available at: http://www.citizen.org/taadatabase.
  5. U.S. Bureau of Labor Statistics, Current Employment Statistics survey, series ID CES3000000001, manufacturing industry, U.S. Department of Labor, extracted Feb. 6, 2018. Available at: http://www.bls.gov/ces/.
  6. Robert Scott and Zane Mokihber, “The China Toll Deepens: Growth in the U.S.-China Trade Deficit Between 2001 and 2017 Cost 3.4 Million Jobs, With Losses in Every State and Congressional District,” Economic Policy Institute Report, Oct. 23, 2018. Available at: https://www.epi.org/publication/growth-in-u-s-china-trade-deficit-between-2001-and-2015-cost-3-4-million-jobs-heres-how-to-rebalance-trade-and-rebuild-american-manufacturing/.
  7. A prominent example is a 2017 study led by renowned economist Daron Acemoglu, which found that U.S. trade with China between 1990 and 2007 displaced three times as many jobs as robots did. Daron Acemoglu and Pascual Restrepo, “Robots and Jobs: Evidence from US Labor Markets,” National Bureau of Economic Research Working Paper 23285, March 2017. Available at: https://economics.mit.edu/files/12763. A 2013 study by Autor, Dorn and Hanson on the U.S. job impacts of both technology and trade found “no net employment decline” from technological change from 1990 to 2007. David Autor, David Dorn and Gordon Hanson, “Untangling Trade and Technology: Evidence from Local Labor Markets,” National Bureau of Economic Research, Working Paper 18938, April 2013, at Abstract. Available at: http://www.nber.org/papers/w18938.pdf; Susan Houseman, “Understanding the Decline of U.S. Manufacturing Employment,” Upjohn Institute for Employment Research Working Paper, Jan. 2018. Available at: http://www.upjohn.org/mfg-decline.pdf.
  8. Daniel J. Ikenson. “A Compromise to Advance the Trade Agenda: Purge Negotiations of Investor-State Dispute Settlement,” CATO Free Trade Bulletin No. 57, March 4, 2014. Available at: https://www.cato.org/publications/free-trade-bulletin/compromise-advance-trade-agenda-purge-negotiations-investor-state.
  9. Gary Hufbauer and Jeffrey Schott. “NAFTA: An Assessment,” Institute for International Economics, 1993, at 14. Available at: https://books.google.com/books/about/NAFTA.html?id=ebHkRhPma9IC.
  10. United States International Trade Commission, “Potential Impact on the U.S. Economy and Selected Industries of the North American Free-Trade Agreement,” USITC Publication 2596, Jan. 1993, at viii. Available at: https://www.usitc.gov/publications/332/pub2596.pdf.
  11. U.S. International Trade Commission, “Interactive Tariff and Trade Dataweb,” accessed Feb. 8, 2018. Available at: http://dataweb.usitc.gov. Figures are adjusted to 2017 dollars using the CPI-U-RS from the Congressional Budget Office.
  12. U.S. International Trade Commission, “Interactive Tariff and Trade Dataweb,” accessed Feb. 8, 2018. Available at: http://dataweb.usitc.gov. Data is a comparison of the compound annual growth rates of the combined balance of the respective countries from 1993 through 2017. For NAFTA trade data, exports are domestic exports and imports are imports for consumption, adjusted for inflation to 2017 dollars. For all other countries, exports are total exports and imports are general imports, adjusted for inflation.
  13. U.S. Bureau of Economic Analysis, “International Transactions, International Services, and International Investment Position Tables,” accessed Feb. 8, 2018. Available at: https://apps.bea.gov/iTable/iTable.cfm?ReqID=62&step=1.
  14. U.S. International Trade Commission, “Interactive Tariff and Trade Dataweb,” accessed Dec. 17, 2018. Available at: http://dataweb.usitc.gov. Figures are adjusted to 2017 dollars using the CPI-U-RS from the Congressional Budget Office.
  15. ProMéxico, “The Mexican Automotive Industry,” Figure 7 Light and Heavy Vehicle Assembly Plants in Mexico, 2015, at 62. Available at: https://www.promexico.mx/documentos/biblioteca/the-mexican-automotive-industry.pdf.
  16. Bernard Swiecki and Debbie Maranger Menk, “The Growing Role of Mexico in the North American Automotive Industry: Trends, Drivers and Forecasts,” Center for Automotive Research, July 2016, at 12. Available at: http://www.cargroup.org/wp-content/uploads/2017/02/The-Growing-Role-of-Mexico-in-the-North-American-Automotive-Industry-Trends-Drivers-and-Forecasts.pdf.
  17. United Nations Economic Commission for Latin America and the Caribbean, “Foreign Direct Investment in Latin America and the Caribbean 2018,” 2018, at 91. Available at: https://repositorio.cepal.org/bitstream/handle/11362/43690/7/S1800683_en.pdf.
  18. Don Newquist, “Perot is Dead Wrong on NAFTA,” The New York Times, May 10, 1993 in “Congressional Record, 103,” May 11, 1993, at 9629. Available at: https://www.gpo.gov/fdsys/pkg/GPO-CRECB-1993-pt7/pdf/GPO-CRECB-1993-pt7-7-1.pdf.
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  20. U.S. Census Bureau, “Educational Attainment in the United States: 2017,” Table 2. Educational Attainment of the Population 25 Years and Over, by Selected Characteristics: 2017,” 2017. Available at: https://www.census.gov/data/tables/2017/demo/education-attainment/cps-detailed-tables.html. Those considered without college educations include those in the following categories: 1) None - 8th grade, 2) 9th - 11th grade, 3) high school graduate, 4) some college, no degree, 5) associate's degree.
  21. Average wage data for 1993-2018 from Bureau of Labor Statistics’ Current Employment Statistics survey, series CEU0500000008, U.S. Department of Labor, extracted Dec. 17, 2018. Productivity data from Bureau of Labor Statistics’ Major Sector Productivity and Costs index, series ID PRS88003093, U.S. Department of Labor, extracted Dec. 17, 2018. Data inflation-adjusted to 2018 using the Consumer Price Index-U-RS.
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  24. John McLaren and Shushanik Hakobyan, “Looking for Local Labor Market Effects of NAFTA,” Working Paper, June 19, 2015. Available at: http://www.people.virginia.edu/~jem6x/nafta_revision_jun_2015.pdf.  Later published as: Shushanik Hakobyan and John McLaren, “Looking for Local Labor Market Effects of NAFTA,” The Review of Economics and Statistics, 98: 4, Oct. 2016.
  25. A study of more than 400 union certification campaigns found that threats to close plants were made in 68 percent of union organizing campaigns in “mobile” industries (such as manufacturing, communications and wholesale/distribution) versus 36 percent in “immobile” industries (such as construction, healthcare and other services). Where threats to close were made, 18 percent of the employers directly threatened to move to another country – typically Mexico – if the union succeeded. The research found an increase in the number of such threats of relocation in mobile industries after NAFTA came into effect. Overall, unions had a lower success rate in campaigns where threats to close were used (38 percent) than in campaigns where no such threats were made (51 percent). See Kate Bronfenbrenner, “Uneasy Terrain: The Impact of Capital Mobility on Workers, Wages and Union Organizing,” paper submitted to the U.S. Trade Deficit Review Commission. Cornell University School of Industrial and Labor Relations, Sept. 2000. Available at: https://digitalcommons.ilr.cornell.edu/cgi/viewcontent.cgi?referer=https://www.google.com/&httpsredir=1&article=1002&context=reports. Kate Bronfenbrenner, “Raw Power: Plant-Closing Threats and the Threat to Union Organizing,” Multinational Monitor, March 1997. Available at: https://digitalcommons.ilr.cornell.edu/cgi/viewcontent.cgi?referer=&httpsredir=1&article=1021&context=cbpubs.
  26. Thomas Piketty and Emmanuel Saez, “The Evolution of Top Incomes: A Historical and International Perspective,” National Bureau of Economic Research, Paper 11955, Jan. 2006, numbers updated through 2015 (latest available) in a January 2018 extract. Available at: http://www.econ.berkeley.edu/~saez/.
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